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Nord Stream Project – The Strategic Importance to Russia and the EU Conference: Nord Stream Project: the Economical, Political, Löegal and Ecological Implications for the Baltic Sea RegionVilnius, 12 February, 2007: 

Nord Stream Project – The Strategic Importance to Russia and the EU Conference: Nord Stream Project: the Economical, Political, Löegal and Ecological Implications for the Baltic Sea Region Vilnius, 12 February, 2007 Dr. Frank Umbach Research Institute of the German Council on Foreign Relations (DGAP), Berlin E-Mail: umbach@dgap.org Web-Seite: www.dgap.org

“We will increasingly compete with others for energy. …The scramble for territory of the past maybe replaced by a scramble for energy. We have to take our energy where we find it. Although energy markets are increasingly global, much of the world’s gas and oil reserves lie in unstable and often undemocratic parts of the world. … We may have to deal increasingly with governments whose interests are different from our own and who do not necessarily share our values. Sitting on huge reserves of oil and gas gives some difficult regimes a trump card. They can use energy revenues for purposes which we may find problematic. And it shields them from external pressure. Thus, our energy needs may well limit our ability to push wider foreign policy objectives, not least in the area of conflict resolution, human rights and good governance.” (Javier Solana, ‘Towards an EU External Energy Policy’, Address at the EU Energy Conference, S324/06Brussels, 20 November 2006): 

“We will increasingly compete with others for energy. …The scramble for territory of the past maybe replaced by a scramble for energy. We have to take our energy where we find it. Although energy markets are increasingly global, much of the world’s gas and oil reserves lie in unstable and often undemocratic parts of the world. … We may have to deal increasingly with governments whose interests are different from our own and who do not necessarily share our values. Sitting on huge reserves of oil and gas gives some difficult regimes a trump card. They can use energy revenues for purposes which we may find problematic. And it shields them from external pressure. Thus, our energy needs may well limit our ability to push wider foreign policy objectives, not least in the area of conflict resolution, human rights and good governance.” (Javier Solana, ‘Towards an EU External Energy Policy’, Address at the EU Energy Conference, S324/06Brussels, 20 November 2006)

Introduction I: 

Introduction I Contract Signed on September 8, 2005: contract signed for the construction of the North European Gas Pipeline (NEPG) in the presence of Vladimir Putin and Gerhard Schroeder; Contract between Gazprom and the German BASF and E.ON companies (Gazprom: ownes 51%; German BASF/Wintershall and E.ON Ruhrgas will take 24,5% each; any new partner will take shares only from the German side!); Subsea Gas Pipeline: running across the Baltic Sea (starting in in the Portovaya Bay near Vyborg with a length nof 1189 km to Greifswald) bringing Russian gas directly to Germany, while bypassing the EE countries; Gas production rate for first pipeline 27.5 bcm per year; with second string up to 55 bcm; Official Costs for subsea section 4 bn € (5.7 bn $); Planned to Start Operation: in 2010 Justified by Russian experts as a “real breakthrough into Europe not only in the energetic but also in the political sphere”; Harsh criticism in Poland, to some extent also in the Baltic states and increasingly also in Sweden;

Introduction II: 

Introduction II Global Dimensions: Global demand; Shift of the global power balance between consumer and producer states – emerging of a global “sellers market”; Renationalization trends worldwide; Russian Energy Policies: Russian-Ukrainian conflict of January 2006; Russian perception of that conflict and the implications for its relations with the EU; Unreliable energy partner – lessons not learned! ECT and Transit Protocol not ratified; No or limited access to Russian energy market for foreign companies; Renationalization trends – pre-condition for FP/SP; Russian energy policies and resources used as the main foreign policy instrument by the Kremlin and the siloviki;

Introduction III: 

Introduction III Russian-Ukrainian Gas Conflict has Demystified Several Long-Standing Assumptions Underlying German Energy Policy and Foreign Policy: oil and gas are exclusively economic goods, not strategic ones. According to this view, energy resources are not part of the foreign and security policy strategy of other countries, and the energy policies of other countries strictly adhere to the rules of market economics, as in Germany and Europe. the security of the energy supply is, hence, no longer an important factor and can be left to private utility companies. disruptions in regional or global energy supply can be offset by other oil and gas imports at any time. Russia under President Putin has steadily strengthened its market orientation. Never having used energy exports as a political weapon even during the cold war, Russia will always prove to be a reliable energy partner for Europe. Russia’s need to export its oil and gas to the European market has led to mutual dependence that precludes the instrumentalization of Russian energy and pipeline policy as a factor of foreign policy in the age of globalization.

Polish and Baltic Criticism: 

Polish and Baltic Criticism Current projects seem to favour Poland as the preferred route for building a new EU-Russia oil pipeline; Hardly surprising, Poland and Baltic states have heavily criticised the new agreement between Germany and Russia to build a 1,200 km gas pipeline directly linking them under the Baltic Sea by 2010; Criticism: Perception of a political alliancew between Germany and Russa at the expense of the new EU member states; „Approvement over their heads“ as new EU member states; Alternatives more viable: pipeline built on land; Baltic Sea gas pipeline gives Russia access to new market (UK); Fears that Russia may use it for geopolitical purposes and to pressure Poland;

Germany‘s Interests and Views I: 

Germany‘s Interests and Views I Germany’s Changing Debates on Energy Security: faith in market mechanisms as a cure-all appears boundless; in the last 20 years the dependability of the energy supply has been left to the private utility companies, whose corporate strategy, however, is primarily profit-driven; overlooking geopolitical dimensions and the factor of energy supply security; scarcely anyone has felt ultimately responsible for safeguarding the future supply of energy; March 2005: first conference after more than 20 years, organized by the Federation of the German Industry, on energy and raw material security. first time that an institutionalized dialogue is taking place between the German energy industry and the foreign ministry on the international/geopolitical dimensions; until the end of 2007, the coalition government will develop a national energy and a national resources (raw material) concept;

Germany‘s Interests and Views II: 

Germany‘s Interests and Views II Germany Is Overlooking: Germany’s fixation on Russia is even more precarious for the former Warsaw Pact countries, which are still far more dependent on Russian energy than Western Europe is; Three-quarters of known world oil reserves are in the OPEC countries; two-thirds of the reserves are in the Persian Gulf; Oil: With just 5% of total oil reserves, Russia is important not more than the Caspian region, off-shore reserves off West Africa and in the Gulf of Mexico, from Canadian tar sands and in the Venezuelan Orinoco Belt; Russia cannot replace Saudi Arabia or other major producers in the Persian Gulf; Gas: Russia is much more important as a gas producer and exporter, where it accounts for 25% of world exports and 25% of proven reserves; Russia‘s economy is overwhelmingly based on the exploitation of oil and gas resources, but favor‘s a highly centralized political system where a few men hold the power to reward stateowned concessions and guarantee investment conditions;

Germany‘s Interests and Views III: 

Germany‘s Interests and Views III Germany’s Declared Interests at and Views on the Nord-Stream Project: In favour: Securing gas imports on a long-term contract (at least half of the pipeline capacity is earmarked for Germany – 27.5 bcm = 30% of Germany’s gas demand); Diversification of a new transit routes; Close integration with German energy companies and banks (E.ON is a major foeign shareholder in Gazprom wih a 6.5% stake; Russia political more stable than most of the other exporter states (like in the Middle East, Africa, Maghreb area, Central Asia etc.); Germany becoming the most impoprtant energy hub and distributor for Russian gas;

Germany‘s Interests and Views IV: 

Germany‘s Interests and Views IV Against: no diversification of importing countries – cementing and increasing Germany’s dependence on Russian gas and energy in general; Energy security argument: economically cheaper options (Yamal 2 through Belarus and Poland; connecting pipelines to SEE; Ukraine and Central Asia); Germany is already an energy hub and distributor for Russian gas. Hitherto Security and Military Dimensions of the Pipeline Project not being Discussed – neither in Germany nor in the European Commission or the European Parliament!

Germany‘s Interests and Views V: 

Germany‘s Interests and Views V Germany’s Declared Interests at and Views on the Nord-Stream Project: Merkel government: contradicting factors and policies: “pacta sunt servanda”; But far more critical on Russia’s domestic and foreign policies; Diversification of Germany’s energy imports; Hope for a close economic an political interdependence effects (FM); Closer cooperation and information with Poland; Favouring real European energy markets and new pipelines from Germany to Poland and other new EU members; Overlooking the security and military dimensions on Russia’s side so far;

Russia‘s Energy Policies and Geopolitical Interests I: 

Russia‘s Energy Policies and Geopolitical Interests I Russia as an Energy Superpower: has regained its former Soviet position as one of the world‘s largest oil and the globally largest gas producer; it has the largest natural gas reserves in the world (ahead of Iran); prior to the Yukos affair, it had begun to attract signi-ficant FDI; energy cooperation seems like a good complement for cooperation on the global war against terrorism (US-Russia) and being the main vehicle for a strate-gic EU-Russian relationship and Europe‘s engage-ment polices vis-à-vis Moscow;

Russia‘s Energy Policies and Geopolitical Interests II: 

Russia‘s Energy Policies and Geopolitical Interests II October 2000: EU-Russia Energy Dialogue had been launched; Motivations: EU: interest at security of supply; Russia: to secure foreign investment; facilitate its own access to EU and world markets (half of Russia‘s trade is done with EU); and EU support of Russia‘s bid for accession to the WTO; Common discussion: opening Russia‘s domestic energy market to competition (Gazprom controls around 90% of Russia‘s gas production and enjoys a monopoly situation in terms of exports); improvement of business environment, including investments; cooperation on climate change under the Kyoto Protocol, ratified ultimately in Jan. 2005; nuclear safety and decommissioning; Russia‘s failing ratification of the Energy Charter Treaty (ECT);

Russia‘s Energy Policies and Geopolitical Interests III: 

Russia‘s Energy Policies and Geopolitical Interests III Gazprom supplies around 25% of the EU‘s natural gas needs; EU buys 85% of Russia‘s oil exports; Russia is the EU‘s fifth largest trading partner (after the US, Switzerland, China and Japan); Bilateral trade in 2004: 96,5 billion €; EU gas imports: the expense of the infrastructure and the investment involved make the supply of natural gas far less flexible than that of oil, especially during crises (many states depend on a single pipeline). excessive dependence on Russia, especially for natural gas imports, would run counter to the EU’s imperative of diversifi-cation. it would also prove to be a delicate problem because of linkage between foreign and security policy motives in Russia’s approach to energy exports, which by no means follows purely economic criteria.

Russia‘s Energy Policies and Geopolitical Interests IV: 

Russia‘s Energy Policies and Geopolitical Interests IV There is no guarantee that Western and even German companies find themselves in an analogous position to Yukos; The argument that pipelines make suppliers and buyers fundamen-tally dependent on one another is overlooking the following facts: It is only true as long as both have and seek access to alternative markets; both sides must recognise that interdependence and guide accordingly their strategies and policies („asymmetric interdependence“ in the EU-Russia relationship); Russian foreign and security experts are speculating rightly that EU politicians are making a policy of anticipatory kowtows towards Moscow („silence for gas“); Russian Gas Shortage and EU demand: Russia will remain the main energy supplier of the EU until 2020, However, the EU will be forced simultaneously to import more oil and gas from other suppliers due to Russia‘s limited oil reserves, its rising domestic energy demand and its diversification strategy to export oil and gas (LNG) also to Asia (China); rapidly rising domestic demand, failing investments and EU gas demand of 490 bcm in 2030).

Russia‘s Energy Policies and Geopolitical Interests V: 

Russia‘s Energy Policies and Geopolitical Interests V Putin’s dissertation of 1997: understands energy resources as the main instrument not only for a broad economic recovery but also for its foreign and security policies for regaining a global great power status (“Russia as an energy superpower of the 21st century”); Putin and the EU are overlooking major structural problems in its energy sector and its counterproductive re-nationalisation policies; Russia’s reliability as an energy great power is questionable because: of its instrumentalisation for its foreign and security policies as well as Russian Gas Shortage/Crisis: 2010 lack of 80-126 bcm; 2015: up to 200 bcm as the result of failing investment (Russia’s energy sector needs up to 900 billion $ until 2025/2030) which already undermines a number of agreed and negotiated energy deals in the mid-term future; September 2006: Putin confirmed the shortage, but not the volume.

Russia‘s Energy Policies and Geopolitical Interests VI: 

Russia‘s Energy Policies and Geopolitical Interests VI Improvements along the Producer-Distributor-Consumer Chain? Energy Charter Treaty and Transit-Protocol; German Foreign Ministry: “Energy-OSCE” (for a new basic agreement bet-ween producer, transit and consumer states)? – hardly realistic + effective); EU-Russian Energy Partnership: underlying assumption of mutual interdependence – the argument that pipelines make suppliers and buyers fundamentally dependent on one another is over-looking the following facts: It is only true as long as both have no and do not seek access to alternative markets; both sides must recognise the interdependence and guide accord-ingly their strategies and policies (political reality: rather an unstable „asymmetric interdependence“ in the EU-Russia relationship); Russian foreign and security experts are speculating rightly that EU politicians are making a policy of anticipatory kowtows towards Moscow („silence for gas“);

7. EU-Russian Energy Alliance? VI: 

7. EU-Russian Energy Alliance? VI Improvements along the Producer-Distributor-Consumer Chain II? Putin government is using its energy resources as the main instrument for its present and future foreign and security policies (see also Putin’s dissertation of 1997); Russia seeks to establish a GAS-OPEC to control prices and to influence economic, foreign, and security policies of regional states in Eurasia (including EU); ⇨ EU needs more to stick to its principles and to adopt a long-term strategy towards Russia, which is not so much based on the present Russian leadership and elite (“siloviki”) as well as their present policies (encouraging reformers); ⇨ EU and German energy cooperation with Russia should insist on a real partnership in joint ventures and other common energy projects and not allow a majority control by Russia.

Russia‘s Energy Policies and Geopolitical Interests VII: 

Russia‘s Energy Policies and Geopolitical Interests VII Russia‘s Strategic Interests at and Views on Nord-Stream: Stability of European energy supply in the short- and mid-term future depends on its energy relation with Russia; Ensures direct energy security of the Kaliningrad region; Creating for a first time a direct link between the Russian gas transport network and the general European gas network; Bypassing transit-states, makes Western Europe and Germany directly dependent on Russian gas pipelines and exports; Foreign policy impacts: respect for Russia‘s interests, hope for appeasement policies to Moscow‘s „Energy Finlandization of Europe“; Weakening the EU‘s strive for a common energy policy (hindering the EU‘s diversification), CFSP and its neighourhood policies; Increases the negotiation influence on and leverage over Transit states; albeit it is not the cheapest pipeline version, it offers a long-term contract of high energy prices and incomes – guarantees stability and predictability, reliability in Russia‘s understanding of energy security as a producer state;

EU-Energy Security I: 

EU-Energy Security I EU‘s Position on Nord Stream until 2005: In 1999,study work on the possibility of the development of the North Transgas Project; December 2000: DG-TREN classified the pipeline belonging to the Trans-European Networks (TEN); April 2001: Gazprom, Ruhrgas and Fortum signed an agreement conceing the cost-effectiveness analysis; December 2002: presentation of the new strategic project of Gazprom: NEGP; June 2003: Putin and Tony Blair signed an memorandum concerning the participation of UK; In 2002: EU supported idea and declared as a priority; 8 September 2005: North European Gas Pipeline established;

EU-Energy Security II: 

EU-Energy Security II EU‘s Position on Nord Stream since 2005: Poland: betwen 1997-2004 believing that it was just an element of economic pressure on it and other transit states; Increasing concerns over Russia‘s reliability as an energy exporter and partner after the Russian-Ukrainian crises; Progress on the way to a real common energy and energy foreign policy; Diversification of energy imports and better crisis management (Nabucco).

EU-Energy Security III: 

EU-Energy Security III Uncertainties of Nord-Stream: Gazprom or the Kremlin never presented any alternatives as the most economically optical choice for Russia (based on a geopolitical base); Filling the pipeline: South Russian fields: not sufficient by 2010-2013 (planned production rate is just 25 bcm instead 27.5 bcm of the first Nored Stream pipeline); Shtokman field: requires an $20 billion investment, time of develop-ment uncertain (not realistic before 2015); lack of technology for deep sea exploration; originally it was planned to use it for LNG exports; Real costs of the pipelines may double (according to independent Russian experts) up to 8-10 billion Euro; Russian gas shortage; Environmental dimensions affecting the real costs;

EU-Energy Security IV: 

EU-Energy Security IV European Commission calls for a mix of energy strategies: maintaining nuclear energy; diversifying national energy mixes as well as oil and gas imports; improving energy efficiency; changing consumer behaviour through taxation measures; and others; doubling the share of renewable energies in the overall energy supply quota from 6 to 12% and raising also their part in electricity of a common energy policy; proposal for increasing emergency strategic oil reserves up to 120 days, including against volatile price developments, had been opposed by member states and the European Parliament.

EU-Energy Security V: 

EU-Energy Security V Increased Use of Natural Gas: the expansion of natural gas as an environmental clean energy source will play a very important factor in the next two decades for the EU member states; in this regard, the EU and Russia with its 48 trillion cubic meter reserves have declared an “energy partnership” in October 2000; EU import demand in 2010: 214 bcm (the world‘s largest gas import market); EU import demand in 2030: 490 bcm – in comparison: USA-159 bcm; China/India-83bcm (IEA-WEO 2006)

EU-Energy Security VI: 

EU-Energy Security VI Potential Natural Gas Exporters for Europe (mt)

Conclusions and Perspectives I: 

Conclusions and Perspectives I EU is key actor on the international energy market: The largest energy importer of the world; The second largest global energy consumer; Enlargement has reinforced the strategic trend of rising imports and dependencies, despite the fact that some of the new member states are producers of primary energy (e.g. Poland for coal and Romania for oil and gas); Energy supply security will become a more important policy issue in the years to come due to the global demand as well as to the rising dependence of European oil and gas imports from outside Europe. EU needs to diversify its energy imports, specifically those of its new member states; In this context, Central Asia, Ukraine and Turkey as new „energy bridges“ between Central Asia and the EU will become more important for Europe. More efforts need to be taken in regard of greenhouse gas emissions and investment for renewable energy sources.

Conclusions and Perspectives III: 

Conclusions and Perspectives III 3 major questions need to be answered by EU member states: In the light of the global energy supply security, is a national energy policy still sufficient for the future? (no!) Do we need a national/common European energy foreign policy? (yes!!) Is a liberalized energy and in particular gas market really realistic when the EU or major member states may become ever more dependent on Russian gas imports (taking into account Russia‘s economic and geopolitical interests of strengthening its monopolistic positions throughout Eurasia and creating a Gas-OPEC with Algeria and Iran)?

Thank you very much for your attention!: 

Thank you very much for your attention!